With the recent launch of OpenAI’s “omni” model, we are now deep in the
era of Generative AI. The capabilities of artificial intelligence have been
greatly expanded, with large language models performing a variety of complex
tasks such as code writing, art creation, quality assurance, and even fraud detection.
As society adapts to these changes, the collections industry must also embrace
Generative AI and explore its vast potential to solve common challenges.

Technological booms have always been met with cautious skepticism. From
the introduction of steam engines to the invention of the telephone, society
has often welcomed innovation with a degree of reservation. However, if history
teaches us anything, it is that early adopters, innovators, and pioneers also
approach technological innovations with courage. Artificial intelligence is
here to stay—and it’s here to change the world. The question is, which problems
are we trying to solve, why, how, and when?

In the accounts receivables industry, we have seen the emergence of
several early adopters among creditors, lenders, and collection agencies. AI
tools are already in use to monitor compliance, automate consumer
conversations, analyze credit risks, and build financial models. With time, we
are seeing the ROI of these tools increase. How should collection leaders
approach this critical phase?

Achieving Collection Performance Beyond Human Capabilities

Banks and fintech companies are progressively investing in technology
to gain a competitive edge. Augmenting manpower with AI has improved staff
efficiency and productivity while driving down costs; concurrently, better
consumer engagement has led to topline growth.

In the Conversational AI space, we are automating consumer
conversations across all channels—voice, text, chat, and email. Commonplace
tasks such as consumer verification, payment negotiation, and payment
processing can now be automated in both spoken and written interactions,
enabling live agents to focus on complex queries requiring additional research,
expertise, and skills. This change is helping creditors and collection agencies
improve their collection rates and agent productivity and reduce the cost of
collections.

This is not aspirational thinking; what I’m describing is taking place
right now. My prediction is that Conversational AI will automate 90% of
consumer interactions within the next two years.

Why LLMs Represent a Transformative Solution for Financial
Services Organizations

Large language models are fed with immensely large amounts of public
and proprietary data and continue learning from ongoing interactions and new
data inputs.

Collection agencies’ customer relationship management tools (CRMs)
contain roughly two decades of consumer interactions, consumer profiles,
transactions, and agent notes. This data goldmine can help us better understand
the consumer journey, behavior, and payment propensity.

Today, financial services organizations rely on credit scores to
evaluate consumers’ creditworthiness. However, credit scores have two main
blind spots:

1. The evaluation models are based on limited
   credit lending history and are therefore prone to bias against specific
   consumer segments with limited credit histories.
2. The models do not contain granular data on
   consumer behavior for effective engagement (e.g. the best time to contact
   the consumer).

Large language models, when trained with consumer data and past agent
interactions, can bridge these gaps and curb biases, effectively helping
financial services organizations determine the best engagement and recovery
strategy at an individual level. We can refer to these LLMs as large collection models.

In the future, orchestration platforms for the debt
collection industry—collection
orchestration platforms—will become instrumental when trained with consumer
engagement data from creditors’, lenders’, and collection agencies’ CRMs. The
data will help the AI tools evaluate the consumers’ propensity to pay,
accelerating the recovery process and enabling collectors to allocate more
resources for the most complex segments. This strategy can help optimize
processes, maximize recovery rates, and cut collection costs.

Here are a few ways engagement strategy and consumer experience (CX)
can be optimized based on granular data and past engagements:

• Identify the consumer’s preferred communication channel (text, email, voicebot call, live agent call, print letter, etc.)
• Analyze the best day and time for engagement
• Determine the resources required for account resolution

Collection orchestration platforms are going to become more
effective with time, as more consumer engagement data generated by their use
enables them to self-train further, automating the channel, timing, and
strategy of the recovery effort.

How To Leverage New Tech Advancements Effectively and
Responsibly

As with any new technology, the adoption of Generative AI
into the debt collection industry requires a collective effort and commitment
to ethical standards and responsibility, especially with the utilization of
large amounts of consumer data.

Here are a few things to keep in mind to ensure a successful
implementation:

Compliance
guardrails: It’s crucial to prevent hallucinations,
recognize and eliminate biases, and ensure the technology is programmed to
adhere to all applicable industry regulations, including data privacy measures.

Data accuracy: Generative AI is only as good as the data it’s fed. Therefore, it’s
important to monitor data accuracy and live agent logs.

Seamless system
integrations: To obtain the best results, seamless
integration between the CRMs and orchestration platforms is required. Offline
integrations and data transfers pose a risk of data loss and privacy breaches.

In Conclusion: From “if” and “why” to “when” and “how”

Collection orchestration platforms are poised to shape the
future of the collections industry. Industry leaders should focus on these
technological advancements and look beyond the capabilities of current large
language models. Today, the adoption of Generative AI is no longer a matter of
“if” or “why” but rather “when” and “how.” The rapid pace of new
developments in LLMs necessitates this forward-thinking approach.

While today the focus is on LLMs, the future of collections
will center around large collection
models and collection orchestration
platforms. It’s time for the accounts receivables industry to begin a
collective effort to integrate these advanced technologies and redefine best
practices.

To
learn more– Speak With Our
Conversational AI Expert.

Consumers cannot opt out of receiving mail through the United States Postal Service; at least according to  a Judge in the Eastern District of Texas.  Per the court, a preference to avoid physical mail is outside the scope of the consumer’s right to limit the time and place of communications. 

Marks v. Javitch Block LLC, Civil Action 1:23-CV-431-MJT-CLS (E.D. Tex. Mar 15, 2024), began like many Fair Debt Collection Practice Act (FDCPA) cases: A collector sent a demand letter that informed the consumer of their ability to dispute the debt, the consumer responded with a request for verification and, the collector responded verifying the consumer’s debt. However, the consumer’s letter also stated that it was only convenient to contact them via email and the collector mailed their verification letter. The consumer then filed suit claiming that the collector’s last letter was an FDCPA violation as it was mailed to them despite their preference for email.

Though a consumer can limit communications to certain times and/or the consumer did not claim that the communication was sent at an inconvenient time or to an inconvenient place. Instead, the consumer alleged that mail was an inconvenient mode of communication. In dismissing the suit, the court focused on the time and place aspects stating that the consumer’s email preference “falls outside the scope of his right to limit the time and place of communications from the debt collector under the FDCPA and the caselaw of this circuit.” The decision also pointed out that the FDCPA definition of communication is information about a debt being sent “through any medium.”

insideARM Perspective

While we cannot know if the consumer was baiting the debt collector or if they truly find physical mail to be inconvenient, many collectors are having trouble balancing compliance with the FDCPA and compliance with the preferences of consumers. This case, though just a district court decision, is certainly a step in the right direction as collectors can have some confidence that, when in doubt, they can still mail a letter. It also highlights the importance of training employees to catch this type of preference language in communications from consumers because, while successfully defending against an FDCPA suit is convenient, not being sued in the first place should be the preference. 

On May 3, the Arizona Court of Appeals affirmed the state superior court’s decision to uphold Arizona’s Predatory Debt Collection Act (the “Act”) after being challenged by judgment creditors. 

The Act lowered the interest rate cap on medical debt, increased the amount of the homestead exemption, increased the dollar value of personal property and assets exempt from creditor claims, and increased the amount of exempt earnings in garnishment actions.

The plaintiffs alleged that the “Saving Clause” of the Act was unconstitutionally vague and unintelligible due to its failure to directly state whether the Act would apply when a judgment pre-dates the Act but a wage garnishment proceeding post-dates the Act. The appellate court found that the Saving Clause was not vague or unintelligible as the language “provides a framework and examples consistent with how Arizona courts have long ensured prospective application of the law[.]” As such, the appellate court upheld the superior court’s decision and could not rule the Act as unconstitutional.

On April 23, the Governor of Tennessee signed into law HB 2711 (the “Act”) which amends, among other things, the state’s Consumer Protection Act. In particular, the Act establishes the factors that a court may consider when determining a civil penalty for violation of the Consumer Protection Act. The court may consider (i) the defendant’s participation in the attorney’s general complaint resolution process; (ii) and the defendant’s restitution efforts prior to the action; (iii) whether there was good or bad faith; (iv) injury to the public; (v) one’s ability to pay; (vi) the public’s interest in eliminating the benefits derived by the violator; and (vii) the state’s interest.

Additionally, the Act expands its protection of elderly people to “specially targeted consumers” which includes persons who are at least 60 years old, persons under 18, and current and former military service members. Persons who are found to have specially targeted consumers can be liable for penalties up to $10,000. Furthermore, the Act makes other changes such as procedural requirements for actions brought by the attorney general. The Act is effective immediately.

(Editors Note: a previous version of this article linked to an older version of a separate Bill. The article was corrected at 4pm EST on 5/29/24)

The ARM Industry is hard enough to keep up with during a normal week; last week (and with the CFPB in rare form) it was basically a full-time job in and of itself. That is why we on the editorial team at insideARM pride ourselves on finding only the most important news to share with our readers. Last week included two pieces on the CFPB’s recent actions, some tips on implementing AI, and a legislative update out of Minnesota. Read on and catch up on the news from last week and why we think you needed to see it!

On Monday, we brought you an FAQ from our Editor and General Counsel, Missy Meggison, on the recent Supreme Court ruling which held the CFPB’s funding structure was constitutional. On May 16, 2024, SCOTUS published its opinion, and the industry immediately had a flurry of questions. The article addresses some of the most frequent questions we received, including how the SCOTUS opinion may affect operations, what the opinion means for the Late Fee Rule and other pending litigation, what we can expect from the CFPB going forward, and what the industry can do to prepare for an extremely active CFPB. These FAQs provide a good breakdown of the aftermath of this SCOTUS decision, some advice for how to react to it, and a reminder that you aren’t alone if the ruling left you asking “What now?”

Tuesday, we wanted to highlight some of the benefits of implementing Artificial Intelligence for anyone struggling to jump into the use of AI. The article points out some of the advantages like convenience for consumers, AI’s ability to work after hours, and how AI can actually help with compliance issues. These notes include questions you should be asking if you or your organization are considering implementing AI into any of your processes. When it comes to Artificial Intelligence, the word is out and, while it may face regulatory hurdles in the future, it is unlikely that any amount of regulation will put the toothpaste back in the tube. So, there is no better time than the present to at least investigate how AI could improve your organization’s efficiency.

On Wednesday we brought you another CFPB bombshell as the Bureau put out an Interpretive Rule regarding Buy Now Pay Later (BNPL) loans. The CFPB, through a press release, stated that BNPL’s are credit card providers. For lenders that fall under this new interpretation, they would now need to extend to their consumers the protections offered under TILA and Regulation Z. Some of the main responsibilities this drops on BNPL lenders are the investigation of disputes, how to handle refunds/cancelation, and the furnishing of billing statements to consumers. Though this may seem like a smaller subset of lenders, this rule from the CFPB should concern the entire industry as it is further evidence that Director Rohit Chopra intends to take the momentum from the recent SCOTUS decision and run with it, and, we can’t be sure where he is running to next.

Thursday, we reported on an update from the Minnesota legislature and their Debt Fairness Act. The bill was originally presented in February of this year and caused a stir with what would have been extreme changes to the debt collection landscape in Minnesota. The proposed language, as we discussed here, would have severely limited debt collection processes and efficiency in the state. While the bill as passed still makes some major changes, they have been toned down significantly and/or are limited to the collection of medical debt (including a definition of what constitutes “medical debt.”) This shows how impactful the industry can be when it comes together behind a single message. It is scary to think what the final language would have looked like if not for the work of industry veterans and advocacy groups.

We appreciate you reading our weekly recap! If you have more to catch up on, you can find the recap for the week of May 13th here.

You don’t need to face your compliance or collection issues alone! Click here to learn more about Research Assistant, our weekly peer group meeting, and a free 1-month trial!

This February the Minnesota Legislature looked poised to strike a major blow to the debt collection industry with its proposed language for the Minnesota Debt Fairness Act. As we reported, the original bill included a drastic reduction in the statute of limitations for consumer debt and judgments on consumer debt, a prohibition on credit reporting medical debt, and changes to attorney’s fees and garnishments. The final version of the bill (see full text here) is set to become law as it was signed by the Minnesota Governor on May 21, 2024. Thankfully it doesn’t include all of what was originally proposed. Below we will break down the major changes enacted by this bill and when they will go into effect.

Terms and Definitions: This portion of the bill goes into effect on October 1, 2024.

• “Collecting Party” – This new term is defined simply as “a party engaged in collecting medical debt.” Note that the original language did not limit the term to medical debt and specifically expanded the definition of collecting party to include attorneys.
• “Medical Debt” – Includes “[m]edical debt charged to a credit card or other credit instrument,” but, it also excludes “debt charged to a credit card or other credit instrument…that is not offered specifically to pay for health treatment or services[.]” This definition is also limited to “medically necessary health treatment or services[,]” and only applies to debts charged from October 1, 2024 on.
• “Medically Necessary” – Safe and effective, not experimental or investigational, ordered by qualified personnel, used to diagnose or treat a condition, and does not exceed patient’s medical need.

Medical Debt: This portion of the bill goes into effect on October 1, 2024.

• A prohibition on credit reporting medical debt.
• Reasonable costs and attorney’s fees to consumers who successfully defend against a medical debt claim (does not include consent orders or mutual agreements.)
• Collecting Party not liable if their violation was due to incorrect information provided to them by the health care provider or a previous collecting party.
• Removal of spousal liability for debts.

Garnishment and Exemptions: This portion of the bill goes into effect on April 1, 2025.

The original proposed bill made major changes to the amount that could be garnished but, the final bill toned down some to these changes as follows:

• 25% of a consumer’s earnings are garnishable if the consumer’s weekly income exceed 80 times the federal minimum hourly wages.
• 15% of a consumer’s earnings are garnishable if the consumer’s weekly income is 60 and 80 times the federal minimum hourly wages.
• 10% of a consumer’s earnings are garnishable if the consumer’s weekly income is at or below 60 times the federal minimum hourly wages.

Notable Omissions from Final Bill:

• Ban on renewing consumer debt judgments.
• Reduction of consumer debt judgment statute of limitation from 10 to 5 years.
• Reduction of consumer debt statute of limitations to 3 years.
• $5,000 exemption for money in a bank account.
• Private right of action for consumers to enforce debt collection statute (now only applies to student loan servicers.)
• Ability for consumers to recover costs and attorney’s fees for successfully defending against collection suits (now only applies to medical debt claims.)

insideARM Perspective:

While the original proposed language of this bill sent alarm bells ringing throughout the ARM industry, this final bill should be seen as both a win for collectors and proof of how much impact the industry can have when it comes together for a common cause. The final bill still includes some unfavorable changes to garnishment and a ban on credit reporting medical debt but, through the work of advocacy groups and pressure from the ARM Industry, the bill does not include many of the extreme measures originally presented, positively altered many others, and includes a reasonable definition of medical debt.

The Consumer Financial Protection Bureau is wasting no time flexing its muscles now that the Supreme Court has confirmed its funding structure is constitutional. Today, the CFPB announced via press release that it was issuing an Interpretive Rule (Rule) to confirm that Buy Now Pay Later (BNPL) lenders are credit card providers. The Rule lists the requirements for BNPL lenders regarding dispute investigations, consumer refunds or cancellation of services, and billing statements. 

In prepared remarks published in tandem with the press release, Director Chopra stated that “Essentially, any mechanism, tool, or procedure that consumers can use from time to time to buy goods or services on credit gets the protections that consumers have come to know and expect with credit cards.” Heavily citing its own research on BNPL products and the financial profiles of BNPL borrowers, the CFPB reasoned that because BNPL lenders typically meet the criteria of traditional credit card providers, they must extend many of the same rights and protections to consumers found in both the Truth in Lending Act (TILA) and Regulation Z. 

For purposes of the Rule, BNPL refers to “a consumer loan for a retail transaction that is repaid in four (or fewer) interest-free installments and does not otherwise impose a finance charge.” (see page 4). The Rule details how and why BNPL lenders meet the definition of “card issuers” under TILA and subpart B of Regulation Z; however, it also says that lenders that issue digital user accounts to access BNPL credit are generally not subject to the credit card regulations appearing in subpart G of Regulation Z (e.g., penalty fee limits and ability-to-repay requirements).

For practical purposes, this means that BNPL lenders must:

• Investigate disputes: BNPL lenders must investigate disputes consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits. 

• Refund returned products or canceled services: When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts. 

• Provide billing statements: Consumers must receive periodic billing statements like the ones consumers receive for classic credit card accounts.

The Rule is applicable 60 days after publication in the Federal Register. Though stakeholders may submit comments through August 1, 2024, as the CFPB noted on page 15-16 of the Rule since the CFPB has determined this is an interpretive rule, those comments are not required under the Administrative Procedure Act, and the CFPB need not take any further steps before the Rule becomes effective.

insideARM Perspective:

We’ve heard rumblings over the last several years that Director Chopra writes his own narratives and goals, and then tasks the CFPB with publishing data that proves these predetermined narratives. Recently, former CFPB Director Kraninger called out the CFPB for manipulating data. 

When the SCOTUS opinion regarding the CFPB funding was released, Joann Needleman, member at Clark Hill and Legal Advisory Board member, said the decision was like waking a bear from hibernation. In a follow-up article about the SCOTUS CFPB funding decision, I mentioned that much like George W. Bush after he won reelection in 2004, the SCOTUS ruling gave Director Chopra “political capital” and we should expect him to use it.  

Tying these two concepts together, well, here we go. We can expect to see initiatives the CFPB was holding pending the SCOTUS decision to come fast, and we shouldn’t expect those initiatives to be subject to the Administrative Procedures Act or to take into account business practicalities or unintended consumer harms. In other words, we should all be hyper-aware of what the CFPB is doing right now, and leadership, operations, compliance, and IT teams should ensure they are able to communicate effectively and efficiently to ensure they can handle changes as they come. Further, as a practical matter, those working downstream of BNPL lenders should assess whether this affects their operations and be sure to consult with knowledgable legal counsel if there are any questions. 

Debates about Artificial intelligence, its usefulness, and its drawbacks seem to be taking place everywhere in the collections industry these days. Some debt collectors have gone all in, others have dipped their toes in the proverbial waters, and still others have taken a wait-and-see approach. Here are three Operational and Compliance Advantages to consider if your organization is thinking about AI implementation.  

AI Provides for a Convenient Experience for Consumers 

IVR’s can be convenient, but their static nature doesn’t always allow a consumer to get to the right agent quickly and conveniently.  Conversely, AI solutions handle two-way conversations intelligently and efficiently. Whenever needed, it can transfer calls to a live agent; it processes payment, and offers settlements and payment plans as needed. This makes the user experience easier for consumers and the agents receiving these calls.  

Has your organization evaluated your current inbound process and whether AI can improve it? 

Dynamic Self Service is a Win for Everyone 

Skit.ai reports that 21% of consumers try to reach collection agencies outside of business hours. Thus, it’s imperative to offer self-service solutions that can cater to the needs of consumers whenever it’s most convenient for them. Additionally, given that many consumers do not pay on the first instance of payment intent, it’s important to reach them multiple times across a variety of channels. 

Though online portals can help with self-service, online portals alone aren’t enough to give consumers what they need in all the ways they may need it. Some consumers may not want to use a self-service portal and those that call after hours may not make another attempt. Implementing AI however, allows an organization to engage during all hours of the day or night, without asking a consumer to go through a different channel. 

Has your organization considered the amount of consumer traffic lost to attempted after hours communication? 

But What About Compliance? 

One of the biggest hurdles operations professionals report with AI implementation is push back from their compliance counterparts.  By taking a step back, and working together, this challenge can be overcome.  Compliance with laws and regulations at the federal and state levels can be challenging given the litigious nature of the collections industry. However, artificial intelligence provides valuable compliance filters that enable you to never miss a single regulation, keep your agents on script, and can help your organization stay on top of new regulatory developments. When it comes to compliance, Conversational AI is your friend.

Have the Compliance and Operational professionals in your organization come together to look at the benefits of AI? 

Read more about how ai-powered multichannel outreach is transforming the collections industry here.  

HOUSTON, TX. — Universal Fidelity is excited to announce a significant milestone in their journey. They are proud to announce the 100% ownership of Universal Fidelity LP by CEO Jessica Hearn. Universal Fidelity started providing national collection services in 1991 and Jessica began her career in the account receivable industry in 1996 at the company. Jessica has brought a wealth of expertise, having successfully navigated the industry’s complexities with a steadfast commitment to excellence.

Her journey, enriched by her degree from the prestigious University of St. Thomas, embodies Universal Fidelity’s core values of integrity, innovation, and inclusivity. With unwavering dedication, strategic vision, and tireless efforts, Jessica and the Universal Fidelity LP Executive Team have proven instrumental in shaping the company’s success story.

As they continue to expand and enhance their services, this transformation underscores Universal Fidelity’s commitment to diversity, equality, and empowerment within their organization and the organizations they serve. Jessica Hearn’s visionary leadership has been the cornerstone in guiding them toward this achievement, and her dedication to excellence.

Operating from a state-of-the-art call center and collection agency in one of the most diverse cities in the country, Houston, Texas, Universal Fidelity is poised to deliver unparalleled service and results to their valued clients. Their team is energized and ready to embark on this exciting new chapter, embracing the opportunities ahead. They extend their heartfelt congratulations to Jessica on this well-deserved achievement.

Universal Fidelity thanks you for your ongoing support as they continue this journey of growth. They will continue to redefine industry standards and make a positive impact every step of the way for clients and consumers.

Please don’t hesitate to contact them with any inquiries or for further information:

www.uflp.com
1400 Ravello Houston, Texas 77449
281.647.4100